Black Friday sales mark the commencement of holiday season shopping. On this day, retailers offer great discounts on their goods in order to attract customers. While in the present day, Black Friday is seen as an extended Thanksgiving holiday for most people, it has rather sombre origins. The term was first used when two notorious investors, Jay Gould and Jim Frisk decided to work together and buy up as much of the nation’s gold as they could, leading to a drastic rise in the price of gold that day, which in turn led to a crash. There was a 20% drop in the stock market and foreign trade came to a complete halt. This financial crisis led everyone to bankruptcy- from Wall Street barons to farmers. However, with the advancement of time, Black Friday became a means for retailers to make huge profits. Traditionally, it is believed that after an entire year of operating in “red” that is, losses, on the day after Thanksgiving, they are able to make profits by selling a colossal amount of discounted merchandise to customers.
The behavioural aspect of customers on this particular day plays a very important role during Black Friday sales. Usually, the environment that customers are faced with stimulates their frustration and aggressive behaviour. Standing in long lines in the cold weather for hours on end, heavily crowded shops and a limited number of products fuel the need of customers to buy as much as they can, especially if they are desperate to buy gifts at discounted rates with the onset of the holiday season. Literature suggests that changing the physical aspects of the store environment can trigger the emotional, cognitive, and behavioural responses of the customers.
The economics behind black Friday sales mainly relates to the concept of price discrimination wherein, a seller charges different prices for the same products according to different market conditions. A typical market has two kinds of buyers- a price sensitive one and a price insensitive one. Price-insensitive customers will prefer to buy goods on any normal day instead of braving the crowds on a Black Friday sale. However, a price sensitive person would be willing to wait an entire year and buy goods at half the price- these people are the main target for these sales. They are not willing to spend too much money,- but have enough time to participate in the discounting shopping spree. The fact that large crowds drive away price-insensitive shoppers is also beneficial for the sellers. Why sell cheap goods to customers who are willing to pay a higher price for them on any normal day? This allows shopkeepers to have an open option for making profits on other business days.
Another salient concept that is significant to Black Friday is the “loss-leader strategy”. Shopkeepers price their products in such a manner that they make little to no profits. Sometimes, sellers are willing to make losses by charging the lowest of prices. The main idea behind this concept is to attract customers to their shops, by offering alluring discounts on all kinds of products. Once the customer is inside a shop full of discounted merchandise, he will most likely think that all products are available at cheap rates. With this mindset, a buyer is likely to purchase more than what he initially wanted to buy. The profit that he makes from selling other products nullifies the losses made by selling products with little to no profit margin. Besides that, a customer might be attracted to the store after using their reasonably priced products- this way, a seller might gain a handful of loyal customers.
With Black Friday sales being popularised online, there has been a sudden boom in sales on this day. By offering arresting discounts on products online, customers don’t have to set foot in crowded stores or wait for hours in the cold weather. According to data compiled by Adobe Analytics, the highest amount spent on an online Black Friday sale has gone up to $7.4 billion. Another term that has started to rapidly gain p-opularity is “Cyber Monday” wherein, shoppers go back to work and shop online. It falls on the Monday after Thanksgiving weekend and plays a significant role in the retail world,- since it marks the last day of the Thanksgiving shopping period.
The concept of Black Friday has been a hotly debated subject for a long time. Some say that it is good for the economy as it triggers high spending. Shopkeepers are able to clear their inventory by selling the old stock at discounted rates- this mainly works for fashion and electronic goods retailers since they would want to clear their inventory for newer models. However, another school of thought argues that Black Friday sales might be bad for the economy. During this time of the year, people buy cheap, foreign goods in large quantities- this might lead to indigenous production outlets incurring massive losses. As mentioned by Simon Lancaster, Senior Optimisation and Analytics Manager of Tesco Mobiles, there is an immense discounting pressure for companies such as Apple that already sell their products with a low margin. With the idea of Black Friday sales firmly soldered in the buyers’ minds, it is obvious that the more price sensitive customers will choose to wait an entire year to buy at cheaper rates.
Black Friday has always been a historically dynamic event, with proliferating sales and fanatic customers. Although,- with the advancement of time and technology, the traditional hustle and bustle of Black Friday sales have died down, it continues to amplify through virtual means. It is the only day that shopkeepers can finally make up for all the losses they have made that year; it almost comes as a Christmas miracle to these desperate sellers. Black Friday, even with its solemn roots never fails to spread the holiday cheer. As long as the trend of buying and exchanging gifts during the holiday season exists, Black Friday will never fall into obsolescence.
References
Investopedia. (2019, August 28). Income Tax. Retrieved from investopedia.com: https://www.investopedia.com/terms/i/incometax.asp
Simpson et al. (2011, July). An Analysis of Consumer Behaviour on Black Friday. Retrieved from thekeep.eiu.edu: https://thekeep.eiu.edu/fcs_fac/13/?utm_source=thekeep.eiu.edu%2Ffcs_fac%2F13&utm_medium=PDF&utm_campaign=PDFCoverPages
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